A living revocable trust is a trust that a person creates during life. Assets can be added and removed, hence the revocable in the name. I always say that trusts are like a basket, created to hold and manage assets. The grantor transfers an item to a trust, a trust document (essentially 30 page or more of language) dictates how the trust will be run, and at some point in time the trust will end.
Historically this type of trust was used to transfer a home outside of probate. The idea is that the cost of creating a trust and transferring the deed to the trust would be less than the cost of probate. That may be true in some states, but not necessarily so in others. In Wisconsin the cost of an item going though probate is 0.2 percent, or $2 for every $1,000 in value the court is "passing" on to the heirs. That fee can be compared to the cost of creating a trust and doing the necessary deed changes to move the property into a trust. All too often I see people who paid $3,000 for a trust that is empty -- the people who sold it to them were not attorneys and did not change the deed. The trust was empty, and the house was going to go through probate.
Trust can also create tax headaches if the trustee is not financially savvy. Here are a few situations when I think a living revocable trust might be worthwhile:
- properties owned in several states (i.e. home in Wisconsin, cabin in Michigan, and a condo in Arizona). A trust would avoid doing a probate in three states;
- when privacy is important. Some people do not want an inventory of all their assets filed with a court upon death -- anyone can take a look; and
- when substantial probate assets are owned an no other non-probate mechanism is available to transfer the property.
Entire books have been written on living revocable trusts. It is a lucrative instrument, and is often sold with that in mind more than a clients needs. Gather information from several sources before making a decision on a LRT.
And remember, a blog is not a lawyer. Please seek counsel from a licensed attorney in your state.